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User Info Stocks are overvalued in forum [General]
Jstanley01
Posts: 8176
Incept: 2008-07-30
Silver A True American Patriot!
San Antonio, Texas
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Quote:
Stocks: The One Key In Finally Ending The Long-Term Bear Market
Seeking Alpha
June 15, 2012
Eric Parnell

...Many analysts often remark that stocks are inexpensive from a historical valuation perspective with the 12-month trailing P/E on the S&P 500 at 14.9x earnings. I would strongly contend, however, that such a conclusion is misguided when delving deeper into the details of the market...

...Applying a long-term trend line to the valuations bottoms associated with the last three secular bear markets to the likely deflation-then-inflation scenario today implies that we would need to see the current 12-month trailing P/E ratio decline to 8.4x earnings before we reach a final bottom in the current cycle...

http://seekingalpha.com/article/661071-s....
Inline

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You can't cheat an honest man. ~P.T. Barnum

Aliveh
Posts: 4043
Incept: 2008-01-18
Gold
Los Angeles
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I like this article better...

IMHO, CAPE (cyclically-adjusted P/E, i.e., 10-year trailing) gives a clearer picture... it says stocks are still overvalued
http://greenbackd.com/2012/06/05/what-to....
Jstanley01
Posts: 8176
Incept: 2008-07-30
Silver A True American Patriot!
San Antonio, Texas
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Thanks for the link Aliveh. They're defining bear markets differently too.


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You can't cheat an honest man. ~P.T. Barnum
Expiredeternity
Posts: 171
Incept: 2009-08-28

orlando
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Extrapolating from that graph,^^ it looks like we are headed for a BULL market. That would make stocks undervalued....no?

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The toil of the many goes to the corrupt few.

Jocknomore
Posts: 184
Incept: 2009-01-03

Chicago
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In 2005 the S&P 500 was at the same level but GDP growth was 4.9%, now 1.9%. College graduate starting pay was $45,000 now $41,000. Unemployment was 4.62% now now 8.2%. These numbers do not add up.
Jstanley01
Posts: 8176
Incept: 2008-07-30
Silver A True American Patriot!
San Antonio, Texas
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Expiredeternity, no. (From Aliveh's linked):
Quote:
...Equity markets are presently experiencing an extended period of valuation contraction, manifesting as increasing earnings, falling cyclically adjusted price-to-earning ratios (“CAPE”) and a sideways market...

20.56 is not cheap.
Despite over a decade of dropping valuations, a CAPE of 20.56 is presently still well-above long-term averages (the long-run mean is 16.43 and the long-run median is 15.84), indicating that the market is still 25 percent to 30 percent above those averages...
But on their figuring of bulls/bears, a sideways followed by a bear would be unprecedented.

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You can't cheat an honest man. ~P.T. Barnum

Txin1880
Posts: 4735
Incept: 2009-02-25
Green A True American Patriot!
Texas
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what it would only take 150+ years to pay for a share of Amazon with earnings

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Aliveh
Posts: 4043
Incept: 2008-01-18
Gold
Los Angeles
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it's true bear-flat-bear would be unprecedented but CAPE > 40 in 2000 was also unprecedented...and we have a long way to go to hit a typical trough in the single digits.

I personally like CAPE b/c it gets rid of a lot of year/year earnings volatility especially in rapid economic expansion/recession...it doesn't hurt that it was originally advocated by Ben Graham in the 1930s.

Jstanley01
Posts: 8176
Incept: 2008-07-30
Silver A True American Patriot!
San Antonio, Texas
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Quote:
...unprecedented but CAPE > 40 in 2000 was also unprecedented...
Fiscal and monetary intervention this go-round has been unprecedented too. So massive as a matter of fact, that I'd say any long-term bull/bear outlook has to be based on one's opinion of that intervention's ultimate success/failure.

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You can't cheat an honest man. ~P.T. Barnum

Antone
Posts: 7660
Incept: 2008-02-03
Green
Seditionia, USSA
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I think of this as all a big game of Jenga where it starts like a pyramid with a big base, but ends up with the complete inverse until that single point cannot hold up (leverage) the rest of the stack.

It started out at the individual, private company, larger company, municipal level, then to county, state, country, continent and now worldly level.

Good times.

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As if anything has changed:

Wir sind gefickt.

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